Enhancing flexibility and choice
The superannuation system currently offers little flexibility for those who take time out of work, work part time, or have ‘lumpy’ income and therefore have periods in which they make no or limited contributions to superannuation. Women often experience breaks in work, or work part-time, which contributes to lower, on average, superannuation account balances than men.
The Government will ensure that the superannuation system is flexible and equally accessible for all Australians to better meet the objective of superannuation.
Improving access to concessional contributions
From 1 July 2017, the Government will lift current restrictions and allow individuals under the age of 75 to claim tax deductions for personal superannuation contributions to eligible superannuation funds.
This effectively allows all individuals, regardless of their employment circumstances, to make concessional super contributions up to the concessional cap. Individuals who are partially self-employed and partially wage and salary earners and individuals whose employers do not offer salary sacrifice arrangements will benefit from these changed arrangements.
In addition, the Government will improve the superannuation balances of low income spouses by extending the current spouse tax offset to assist more families to support each other in accumulating superannuation. The current income threshold for the receiving spouse (whether married or de facto) will be lifted from $10,800 to $37,000.
A contributing spouse will be eligible for an 18 per cent offset worth up to $540 for contributions made to an eligible spouse’s superannuation account.
The Government will also introduce catch-up concessional superannuation contributions by allowing unused concessional contribution caps to be carried forward on a rolling basis for up to five years for those with account balances of $500,000 or less. This will allow those with lower contributions, interrupted work patterns or irregular capacity to make contributions to make ‘catch-up’ payments to boost their superannuation savings.
Harmonising contributions rules for older Australians
To assist older Australians prepare for their retirement by boosting their superannuation account balances, the Government is lifting restrictions on their ability to contribute.
Currently, there are minimum work requirements for Australians aged 65 to 74 who want to make voluntary superannuation contributions. Restrictions also apply to the bring-forward of non-concessional contributions. In addition, spouses aged over 70 cannot receive contributions. None of these restrictions apply to individuals aged under 65.
The Government will remove these restrictions and instead apply the same contribution acceptance rules for all individuals aged up to 75, from 1 July 2017.
These changes will provide better incentives and more flexibility to all Australians to make superannuation contributions appropriate to their circumstances.
Changes to retirement income products
Rules and regulations currently restrict the development of new retirement income products. These products could provide more flexibility and choice for Australian retirees, and help them to better manage consumption and risk in retirement. They can be of particular benefit for those who are concerned that they might outlive their superannuation fund savings.
As a result, the Government will remove barriers to innovation in the creation of retirement income products. From 1 July 2017, thetax exemption on earnings in the retirement phase will be extended to products such as deferred lifetime annuities and group self-annuitisation products.
This will enhance choice and flexibility for Australian retirees looking to make the most of their superannuation savings and enhance their standard of living throughout their retirement.
The Government will consult on how these products will be treated under the Age Pension means test.
Helping individuals with interrupted work patterns
Emma is a mother on maternity leave who is about to return to work part time. Emma, who earns $30,000 will be eligible for the Low Income Superannuation Tax Offset when she returns to work. Under the new changes to spouse contributions, her partner, Frank will be eligible to claim a tax offset up to $540 for contributions he has made to Emma’s superannuation account.
Once Emma returns to full time work, she will be able to boost her retirement income by making additional concessional contributions. Enabling her to ‘catch up’ by rolling over the amounts left remaining under the concessional contributions cap, Emma can contribute more over her working life. Although Emma has changed jobs she will also benefit from the Government’s changes to member protection measures making it easier for her to reunite and consolidate her multiple accounts, including any in an Eligible Rollover Fund.
Saving for retirement
Gus is a 65 year old retiree who currently draws down his account-based superannuation pension at the minimum rates as he is concerned that his superannuation will run out.
As deferred income stream products do not qualify for the retirement phase earnings tax exemption, these products are not generally offered in the market.
Under this initiative, Gus will have the option to buy a deferred lifetime annuity that will give him a guaranteed income stream for the rest of his life commencing from age 80. This will give Gus the confidence to have a higher standard of living in the intervening period and peace of mind knowing that no matter how long he lives he will receive a guaranteed income stream.